The Corporate Lab as Ringmaster
By STEVE LOHR
August 16, 2009
http://www.nytimes.com/2009/08/16/business/16unboxed.html?_r=1&ref=todayspaper&pagewanted=print

The concept of Open Innovation (see earlier postings at our blog site under the category IDEAS) is truly the wave of the future as this article implies. Importantly, this concept although pioneered by large companies can and will work equally well for smaller enterprises with more limited R&D budgets. In fact, I believe it is the only way for smaller companies to compete with the big guys if they do it right.

"THE Internet has changed many things, of course, but one of its more far-reaching effects has been to transform the economics of innovation.
The nation’s big corporate research and development laboratories — at I.B.M., General Electric, Hewlett-Packard and a handful of other companies — have their roots and rationale in the industrial era, when communication was costly, information traveled slowly and social networks were fostered at conferences and lunchrooms instead of over the Web.

Crowdsourcing and other new, more open models of innovation are really byproducts of the low-cost communication and new networks of collaboration made possible by the Internet.

So, in the Internet era, what is the continuing role and comparative advantage of the corporate R.& D. lab?

Its role will be smaller and its advantage diminished, suggests Michael Schrage, a research fellow at the Center for Digital Business at the Sloan School of Management at M.I.T. The idea-production process, according to Mr. Schrage, will continue to shift away from the centralized model epitomized by large corporate labs, going from “proprietary innovation to populist innovation.”
Much of traditional corporate R.& D. spending, he said, has been subsidized by profits that are increasingly under Internet-era pressures. “The economic case for a lot of in-house R.& D. no longer makes sense,” Mr. Schrage said.
The best bet for corporate R.& D. labs, he said, is to adopt a “federated” model that leverages all the innovative work by outsiders in universities, start-ups, business partners and government labs. The corporate lab’s role, then, is to be more of a coordinator and integrator of innovation, from both outside and inside the company walls (I believe this model is ideal for the smaller company with more limited R&D budgets)

Though hardly alone, Hewlett-Packard has aggressively adopted that approach in the last two years, after Prith Banerjee became the senior vice president for research. Under Mr. Banerjee, former dean of engineering at the University of Illinois at Chicago, H.P. Labs has not only narrowed its focus, placing larger bets on fewer projects, but has also systematically sought outside ideas.
H.P. now runs a yearly online contest, soliciting grant proposals from universities worldwide. The company lists eight fields in which it is seeking advanced research, and scientists suggest research projects in those fields.

The H.P. grants are typically about $75,000 a year, and many of the collaborative projects are intended to last three years. In June, the company announced the 61 winners from 46 universities and 12 countries, including 31 projects receiving a second year of funding. “We are tapping the collective intelligence, selectively, of leading academics around the world,” Mr. Banerjee said……
…..Opening up is a good approach to some problems. But tight-knit teams inside corporate labs, experts say, can outshine the open model when working on multidisciplinary challenges in projects soon heading to market.
“You can’t leave discovery completely to others and to chance,”

A viable approach is to go outside to develop new concepts and then after using techniques such as Real Options management – see earlier postings under the category head PROCESS BEING AMBIDEXTROUS for descriptions) --test and develop/reject them internally.